The rising cost of claims and the complexity of claims management are among the most pressing challenges health insurance companies and other private payers face today. Digitizing every step of the claims process, from data input to payment, has the potential to streamline claims management, as well as boost its efficiency and accuracy. When done right, the result can be both lower costs and better customer experiences.
Full digitization is not yet a realistic scenario in most countries, however. Although consumers have become increasingly comfortable with digital transactions, numerous factors—including data security and privacy concerns, the complications resulting from having multiple stakeholders and, in some places, regulatory constraints—currently hinder efforts to completely digitize claims management. In the short term (at least the next several years), paper and manual methods won’t vanish completely.
Nevertheless, payers can use existing technologies to digitize portions of the process now and by doing so could gain significant value and competitive advantages. The three case studies included in this article illustrate the benefits of this approach, which we call “digital first.” In addition, this article describes what fully digital claims management could eventually look like and explains how payers can make the long-term vision a reality by adopting a digital-first approach.
Why better claims management is needed
The healthcare industry is constantly evolving. For private payers today, effective claims management goes beyond merely processing and paying claims—it also encompasses strategies to better manage medical costs and improve customer interactions. Five trends are spurring digital innovation in claims management:
Healthcare costs are increasing.
Our calculations suggest that, between 2007 and 2017, the average per capita cost of healthcare in many countries increased by a compound annual growth rate of more than 4 percent.1 1.McKinsey analysis of data from the Organisation for Economic Co-operation and Development. Population aging is a big reason why: in many countries, an increasing proportion of the population is over age 65, and the prevalence of chronic diseases rises as people age. Furthermore, the economics of health insurance has changed.2 2.Singhal S, Jacobi N. Why understanding medical risk is the key to US health reform. April 2017. mckinsey.com. Insurance plans were originally designed to cover the cost of care for patients with severe, acute illnesses or traumatic injuries, but today they more often cover the predictable risks (and costs) associated with chronic illness. In addition, advances in the quality of care (for example, innovative treatments such as gene therapy) often lead to better outcomes but frequently raise healthcare costs.
Consumer preferences are becoming consumer demands.
Consumers are increasingly demanding digital and user-friendly pathways that let them easily manage all aspects and stages of their healthcare journeys, and they expect these demands to be met. The high expectations are not limited to “digital natives” (millennials and those born more recently); gen-Xers and baby boomers are also adopting digital technologies.3 3.Cordina J et al. Healthcare consumerism 2018: An update on the journey. July 2018. mckinsey.com.
Government policies may be putting economic pressure on payers.
In some countries, governments are taking steps to encourage payers to reduce administrative costs. In the United States, for example, the Affordable Care Act stipulates that 85 percent of all premiums paid for Individual market plans must be spent on medical services for members, leaving companies with only 15 percent to pay for administrative and overhead costs.4 4.Patient Protection and Affordable Care Act of 2010. US public law 111–48.
Payer employees’ job expectations are evolving.
The expectations of payers’ employees—both current and potential—are changing. Increasingly, payers are giving their employees greater flexibility, more agile organizations, and new ways to work collaboratively; frequent training is also becoming a norm. In one survey, more than 80 percent of young people aged 12 to 25 said they would like to have a job with a meaningful purpose that allows them to develop their own ideas.5 5.Klos H-P et al. The New Generation: Values, Work Attitudes, and Entrepreneurial Requirements. Roman Herzog Institut. 2016.
Health data availability presents both opportunities and challenges.
Health data from a variety of sources—from claims records to wearable devices—is now increasingly accessible in digital form; artificial intelligence and cognitive systems have made it possible to mine this data to develop new cross-functionalities and customer insights. The quantity of healthcare data is expected to be 15 times greater in 2020 than in 2013,6 6.Stanford Medicine 2017 health trends report: Harnessing the power of data in health. Stanford University. June 2017. as health technologies and mobile health products continue to generate additional information.7 7.European Commission. Communication on enabling the digital transformation of health and care in the Digital Single Market; empowering citizens and building a healthier society. April 25, 2018. Merging data from multiple sources remains a challenge, however, and in some countries, data security and privacy concerns still restrict how much of the data can be analyzed. Nevertheless, the growing wealth of data is increasingly being used to provide customers with more personalized offerings and care.
Combined, these five trends are pushing payers toward greater digitization in claims management. Using a digital-first approach to make this transition can allow payers to address numerous current challenges (Exhibit 1). In addition, it can help them more easily achieve their long-term vision of full digitalization, which would better position them to defend themselves if new technology players seek to disrupt the value chain.
The vision: Fully digital claims management
For payers, the key challenge in healthcare claims management is to reduce medical and operating costs while also improving customer experience. Rigorously applying “digital first” as a guiding principle for building a digital claims process will help payers achieve these aims and put them on a path toward full digitization. At its core, the digital-first approach considers digital technology to be more than just a tool to help organizations perform certain tasks better—instead, digital technology is viewed as a comprehensive solution that will affect every aspect of the value chain. Digitization therefore needs to be thought of not only as it applies to technical tasks such as claims auditing but also as a means to improve customer experience and patient outcomes, enable greater customer engagement in their health and care, and lower costs.
In the long-term vision, digital solutions would cover all steps within claims management (Exhibit 2). Because the process would be fully digital, very little human intervention would be needed. In this scenario, claims would be transferred in real time from a provider to a cloud solution containing all electronic health documents (as permissible by local data-protection regulations). Once a claim is transferred to the cloud, self-learning algorithms would automatically access it and perform real-time auditing using technical reference points, such as the claimant’s insurance status and benefits package, as well as medical reference points. Once robust self-learning algorithms have been established and trained using both existing data and expert knowledge, their efficiency will continue to improve over time. (At present, self-learning algorithms can be used to identify “leakage,” such as improper payments and inefficient claims processing. The algorithms are also starting to be used to predict how an individual’s health condition might progress or change, which would make them useful in prevention and early treatment.)
Ultimately, it would become possible to automate payers’ communications with providers and customers. For example, if further information was required to reach a decision about a specific claim, providers would be contacted automatically via a digital request form that would include an integrated first check for basic information (for example, age, sex, diagnosis). When the auditing process is complete, approval or denial decisions would be communicated directly and automatically to the customer, possibly through an app solution. Payment would be transferred digitally and directly to the patient or provider (Exhibit 3).
It is important to note that the data used in all of the processes described in this section would be transferred and stored securely and would be accessible only to authorized entities, such as the insured customer, the treating provider, and the insurance company itself—and only after all appropriate permissions (as specified in local data-protection regulations) were obtained.
The impact: Cost savings, business building
Although full digitization of claims management is a highly attractive goal, no health insurance company or other payer has implemented it as yet. As discussed, full digitization is not a realistic short-term goal.8 8.Freisdorf F et al. Digital document processing: a payer perspective. To be published 2019. mckinsey.com. As the sidebars show, however, some payers have already taken several steps toward this long-term goal and, as a result, have achieved significant improvements in efficiency, usability, and customer satisfaction.
Even partial digitization can lower overall claims costs. We have found that some payers can save as much as 10 to 20 percent of medical costs if they use a digital solution such as advanced analytics to prioritize invoices for auditing or identify patients likely to have future high-cost claims. In addition, payers can reduce their operating expenses for claims processing by up to 30 percent if robotic and automation solutions are employed to automate most of the steps.9 9.Plattfaut R et al. How payers can benefit from automation at scale. To be published 2019. mckinsey.com. (We have found that 60 to 70 percent of those steps can be automated today.)
Furthermore, partial digitization may enable a payer to differentiate itself—and even give it a first-mover advantage—if the result is an extremely intuitive claims model.
The way forward: Do you have what it takes?
Led by the retail sector, other industries already use digital technology extensively to mine opportunities to engage with consumers, improve the customer experience, and increase operating efficiency. In comparison, private payers have only just started to capture the potential such opportunities present.
If private payers are to seize that potential, they must do far more than simply put the right IT architecture in place. Digitizing parts— and eventually all—of the claims process will affect all parts of the organization. Thus, an effective approach to change management that includes a strong focus on culture and mind-sets is crucial. Organizations are constructs based on people, not just processes; for that reason, investments in talent need to be as rigorous as investments in IT.
It is also important that a dedicated team focused on the claims process be created. This co-located and cross-functional team should include medical professionals and representatives of the claims, IT, and customer-contact functions. Team members need to operate in an agile manner—in fact, in start-up mode—to jointly solve problems and rapidly deliver potential solutions that can then be tested with customers and providers. Such fast-learning teams continually check the value that the developed solutions add, respond to users’ experiences, and iteratively modify the software.
The specific ways in which claims management is digitized should be tailored to each payer’s situation and environment. For example, local requirements may govern how data can be shared, and different payers may use different approaches to processes and payouts. These factors influence both the opportunities and risks each payer faces.
The digitization effort itself will require IT infrastructure that is flexible enough to adapt to rapid advances in technology. In addition, the payer will need the digital tools that make digitization of various steps possible. (Examples of the tools are given in the sidebars above.) It is not necessary for the payer to develop or acquire all of the digital tools at once; rather, different tools can be added as new steps are digitized. A number of vendor and partnership opportunities covering all areas within claims management are available to payers that do not want to develop the tools in-house.